Wednesday, June 26, 2013

The Brazilian financial newspaper Valor Económico has asked me a few questions about the bid by Madrid to organize the 2020 Olympic Games. Here are the questions and my answers.

- As an economist, do you support Madrid's bid for the
Olympic Games?

As an economist, it is not my job to support Madrid’s
bid or not, that is up to the people of Madrid and their representatives. As
economists, our role is to point out that there is a large scientific
literature, with sympathies in the financial press (such as The Economist or
the Financial Times), which has found that, in general, Olympic Games have more
social costs than social benefits.

- Do you think Madrid-2020 could repeat the success of Barcelona-92?

That is very difficult, although of course not
impossible. The Barcelona games were very successful and very popular, although
they also experienced large cost overruns and it took a long time to fully pay
for them. There is a legacy of good roads and beaches, but also of expensive
underutilized sports facilities. The tourist boom could have been achieved with
a less costly promotion. But in general, the Barcelona games were better
managed than other sports mega events, there was no corruption and they were
associated to a project of urban renewal (which probably would also have taken
place without the games, but more slowly, which is not necessarily a bad
thing). Perhaps the Madrid Olympics could hire some of the Barcelona executives
that are still active.

- From here in Brazil, it seems to me there's great popular support for
Madrid-2020 and very little dissenting voices. Am I correct? If so, in your
opinion, why is that the Spaniards don't share Mario Monti's stance that Rome
couldn't afford the Games due to the economic crisis?

That is probably a correct appreciation. I had sympathy
for Monti when he took that decision. The last thing that Rome needs now is the
organization of the Olympic Games. Rome does not need to be put in the map.
Spaniards in general are crazy about sports and parties (and the Olympic Games
are a big party), and many people in Madrid do not like falling behind
Barcelona, probably. Still, I can hear more dissenting voices now about Madrid
than in 1992 about Barcelona.

- The government says that the Games would cost around 1,7 billion euros. Do
you think this sum would be the final cost? If not, what would be your guess?

That will probably not be the final cost. All mega
sporting events have large cost overruns until the end, and I doubt that these
will be an exception. The organizing city becomes hostage of the sports
governing bodies (the IOC in this case), and there is a lot of pressure to
spend any amount of money and no pressure to control costs, once the games are
awarded. Unfortunately, I’m not in the guessing business: I would need to have
a lot of information to make an estimation of the final cost.

- Madrid city has a 7,4 billion euros debt and Madrid regional government has a
21,9 billion euros debt. Wouldn't the Games have an enormous impact on their
finances?

They will have an enormous impact on their finances,
although many of the infrastructure has already been built. Madrid is a
wonderful city and probably does not need the Olympic Games. But I insist that
it is up to them to decide. They should be well informed that the Olympic Games
are an expensive party (economically, it is more an act of consumption than an
act of investment), and that they cost public funds that would be valuable in
alternative projects (education, health, social policies). Once informed about
the true costs, if they democratically decide to go ahead, we economists should
not have much more to say.

Friday, June 21, 2013

Demonstrators in Brazil recently showed a banner wondering whether Brazil needs a football (soccer) World Cup. The country will host it next year, and it will also host the Olympic Games two years later, in 2016. Meanwhile, some of their most famous footballers debate in public what is the trade-off between sports and welfare. Former football star Pelé has asked the demonstrators to stop their protest and focus their energies on supporting the national team in the Confederations Cup (a rehearsal of the World Cup), which is currently under way. Former footballer and politician Romario has replied that "Pelé's silence would be poetry," and even another footballer, Rivaldo, has also said that Brazilians need more social policies and less sports tournaments. This has re-opened the debate about the social value of big sports events, which has been raised by a large economics literature in the last 20 years questioning the net social benefits of them, as has been explained for example in an international Handbook. Olympics and world cups are bidding auctions where the organizing bodies have much more bargaining power than the host cities. Once the games are awarded to a city, the latter becomes a hostage, and typically costs escalate as the event approaches. Money is spent in facilities and infrastructures that are needed for a one month event but not for daily life. There is usually an industry of self-interested people supporting the expenditure in any case, but perhaps thanks to the above mentioned literature, their arguments have today to confront a well organized opposition. Twenty-one years ago, the Olympic Games in my home town, Barcelona, received a large public support and were deemed a big success (I know, I was marginally involved). What was the difference? Perhaps that literature did not exist yet, perhaps the administration of the games was not suspicious of corruption, perhaps the historical timing for Barcelona was better than for Brazil. I don't really know...

Sunday, June 16, 2013

Footballer Lionel (Leo)
Messi has been accused of evading more than 4 million euros in taxes to the Spanish authorities. Messi, now 25, arrived in Barcelona when he was 15 with his father, and has become since then one of the most sucessful, perhaps the most successful, football players ever. He has a good reputation not only on the pitch, but also off the pitch. He is a well behaved boy, and has contributed to charitable causes, such as unhealthy and poor children. Of course he deserves as anyone else the presumption of innocence, but perhaps he was ill advised in managing his tax issues, as many young stars are. Messi and his family have protested their innocence. They may be
innocent, but it would have been better to hear from him (and his family) that he is committed
to fight tax evasion, and that he commits to be the best even in that. He also
belongs to the 1% of the richest people, if not in the world, for sure in Spain and Catalonia, two economies devastated by the economic crisis. And no matter how much we enjoy him on the pitch, he should
feel the moral obligation to contribute to the common good. But even if he is guilty of tax evasion, we may wonder if he will ever pay all his taxes. Justice in
Spain is slow, and if anything the authorities have practiced tax competition to attract the best football players, for example through the so called Beckham Law. Tax evasion in Spain is high, and many rich fortunes, some of them linked to politicians, have put their money in tax havens like Messi is accused of doing. This particular issue is surrounded by nationalism. Some Catalan nationalists claim that there are more investigations of fiscal fraud in Catalonia that in other regions of Spain. Of course, for the claim to have any weight, it should be relative to the true level of tax evasion, which is impossible to know. But even if it were true, is that bad? I mean, why not compete in being tough against tax evasion? Wouldn't that be proof of being more civilized? Messi left the formal training system at an early age (who wouldn't have done the same in his shoes?), but someone should teach him that the state is a good thing: the countries with highest welfare
have a higher proportion of tax revenues over GDP and the lowest level of tax
evasion and avoidance. And highest welfare means the best opportunities for the children that Leo Messi claims in his social events to be willing to help.

I lived in Florence between 1995 and 1999 and
thanks to the existence of the Florence School of Regulation I have returned
last year and this year for short visits. Beyond the permanent pshysical risk
of suffering from Stendahl’s syndrome, this time I also enjoyed a big civic
pleasure by attending this forum of dialogue between journalists,
intellectuals, politicians and the general public. To me, it compensated for
the unpleasant surprise of the closure of the Edison Bookshop in Piazza della
Repubblica. The newspaper La
Repubblica, together with its cousin the weekly magazine L’Espresso,
are key institutions in the war against corruption and populism that must be
permanently fought in Italy. The format of this debate is a typical product of
the best of Italian democracy: a festival of debates and dialogues, a celebration
of free speech. The festival was accompanied by an exhibition of some of the
most significant front pages of La Repubblica in the recent past. One of them spoke
of the appointment by Mario Monti not long ago of “The Government of 18
professors,” an experience of technocracy that was defeated in the recent
general election when Monti’s list finished in fourth position. I randomly
attended a dialogue with Francesco Bei and Filippo Ceccarelli, two journalists
at La Repubblica,
and I took some notes about what they were saying: “The capital of seriousness of
the Monti government so quickly dilapidated...;” “Politics does not stop...” “The
farse is the neighbour of the catastrophe...” An intellectual equivalent to Stendahl’s
syndrome.

Tuesday, June 4, 2013

One of the most fascinating chapters of Jared Diamond's book, "Collapse", is the one about how the Norse community on Greenland collapsed, while their neighbours the Inuit community survived in more or less the same (difficult) environment. Diamond claims that if the Norse had been willing to learn some of the techniques (which they could easily observe) mastered by the Inuit, they would also have survived. However, the Norse were prevented from doing so by prejudice. They were so proud to be Europeans that they thought that the Inuit were just an inferior species that did not even deserve their attention. The details of the story are disputed, but Diamond raises the realistic possibility that cultural stereotypes and narrow minded nationalism may be so strong so as to bring a community to commit collective suicide. It is actually not necessary to reach this extreme today to realise that in many corners of the world communities are worse off for failing to realize that one can learn (and economically benefit) from observing, from talking, and from exchanging with those that are not exactly like us.

I finished reading "Stoner", the novel written by John Williams. It is one of the best books I have ever read. It is a campus novel and a story of love and friendship. Parts of it are also an anti-war manifesto, since the story takes place against the background of the two world wars. It is the story of a university professor of rural origin who discovers his love for the literature and teaching and devotes his life to them, and to love and friendship, of course. There is nothing special to this story, it could be the life of any one else. But it is no nicely written that it is almost impossible not to be moved and identified with its main character. Objectively, Stoner is not happy, most things in his life are not "successful." But his love of life and knowledge (is there a difference?) are deeper than conventional measures of success. The university parts of the novel are amazingly contemporary: the attempts to punish unfriendly professors with unpleasant teaching schedules, the commitment and empathy to students... If you read this novel and you don't like it, perhaps there is something that goes too well in your life.